Since the seminal work of Oates (1972) on scal federalism, a central question of public finance has been which level of a federation should be as- signed the provision of public goods. In this paper we study the problem of a government that is to choose the optimal centralization/decentralization mechanism for the final treatment of municipal solid waste. We analyze incentives, equilibria and implications of the governance framework for the disposal of waste. The key decisions revolve around the mobility of waste and the externalities (pollution) associated with its disposal, be it incineration or landfill. Moreover, if the Regions are characterized by different levels of efficiency in the processes they apply to the final treat- ment of waste, in theory a certain degree of waste mobility across regions should allow to reap the benefits of higher efficiency. On the other hand, as transportation and other environmental costs implied by mobility and concentration are significant, a trade-off emerges. Our model evaluates the implications of that trade-off for the optimal degree of decentralization in waste management.
Gebara M.F., L. Muccillo, May P., Claudia Suzanne Marie Nathalie Vitel · 6 authors
Key lessons While the constitutional rights (e.g. property rights) of indigenous peoples (IP) are strong in Brazil and may help to overcome their vulnerability, they are rarely enforceable and do not offer sufficient safeguards. Informed consultation and a structured free, prior and informed consent (FPIC) process that considers cultural issues are fundamental to ensuring acceptance and consent by IP. Local environmental funds can be a tool for increasing autonomy and decentralization while sharing benefits with IP and financing long-term and specific demands that can change over time. Safeguard strategies implemented by the Amazon Fund to avoid conflicts of interest may result in restrictions on the participation of IP, having implications related to the legitimacy of decision-making in the distribution of benefits. The absence of timely financial flows to meet IP needs may be a considerable risk since it can encourage environmentally damaging activities. Relying on the voluntary market may be risky for IP initiatives because of market instability and possible lack of funding.
Open access
Conservation, Biodiversity, and Resource Management
A theory of payment for ecosystem services (PES) pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices. Since ecosystem services are generally interdependent, this requires joint optimization across multiple resource stocks. We develop such a theory in the context of watershed conservation and groundwater extraction. The optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners, financed by efficiency prices of groundwater set by a public utility. The theory is extended to cases where land is publicly owned, conservation instruments exhibit non-convexities on private land, or the size of a conservation project is exogenous. In these cases, conservation investment can be financed from benefit taxation of groundwater consumers. While volumetric conservation surcharges induce inefficient water use, a dynamic lump-sum tax finances investment without distorting incentives. Since the optimal level of conservation is generated as long as payments are correct at the margin, any surplus can be returned to consumers through appropriate block pricing. The present value gain in consumer surplus generated by the conservation-induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation, biodiversity, and cultural values.
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Economic and Environmental Valuation
Water resources management and optimization
Conservation, Biodiversity, and Resource Management
We hereby propose a model to analyze the provision of environmental protection activities (United Nation 2005) with positive interregional externalities in order to verify - at least in theory - whether this kind of policy is better accomplished through centralized policymaking, which implies a coordinated solution among local representatives, or a decentralized system, whereby local authorities independently finance and implement their environmental protection policy. The research question concerns the identification of criteria on how to allocate powers and functions to environmental management at different tiers of government. Moreover, modelling interregional externalities as a mechanism contributing to lowering the cost of financing environmental policy in each region (production externality), we can assume that different environmental policies are allowed across regions. Given this general framework, considerations favouring either institutional setting in terms of individuals’ welfare seem to involve interaction among these key elements: the extent of the inter-jurisdictional spillovers, the size of local jurisdictions and the regional preferences for environmental protection policy.
The paper deals with the equivalence between taxation and emission permits according to different viewpoints: the first one sets prices, the second one quantities. But equivalence is more formal than substantial: taxation is the generating fact, the market of permits does not exist spontaneously. Its price is unstable because supply is not independent from demand. It is manipulatable either ex ante when free allowances are allocated or ex post during the period of compliance through Walrasian tatonnement. A real economic determination of prices exists only when there are unit taxes or penalties on emissions exceeding the quotas. In order to avoid these drawbacks, pay-as-bid auctions must be used and free allowances avoided. Taxation or the price of emission permits are the real option value of changing techniques. An assignment rule is proposed : taxes are assigned to reduce average emissions and permits to reduce marginal emissions. In order to transform the cost into a real change of techniques, it is necessary to finance the sector of research and development of an amount greater than the taxes levied on pollution, which serve at paying the rent of innovation. These extra subsidies are used to move factors of production as capital from industry towards the innovation sector. The tax equivalence is ternary and concerns the taxes on pollution, capital and energy, because extracting fossil fuels is similar as innovation. Decentralization through market schemes induces that depollution has a marketable cost.
On January 8, 1997, the former President of Brazil, Fernando Enrique Cardoso signed the National Water Resource Policy into law (Law No. 9.433, 1997). The key principles of the National Water Policy include: an integrated approach with the river basin as the planning unit, water as a fragile and finite resource, water as an economic good, and finally, decentralized and participatory management of the resource (Formiga and Scatasta, forthcoming). The legislation provided for the implementation of bulk water pricing with the resulting revenues meant to finance the activities mandated by basin committees in the watershed area of Rio Paraíba Do Sul (in Rio de Janeiro and São Paulo, and also in the state of Minas Gerais, that basin committee is Comitê para Integraςão da Bacia Hidrográfica do Rio Paraíba Do Sul (CEIVAP) (Abers and Keck, 2004). To improve the sustainability of many different resources it is a widely accepted concept that charging a fee for something will spur sparing use by the target audience, particularly if the price is high. One-hundred percent of the collected monies have been invested within the basin; mainly designated to the following: non-structural institutional interventions, sediment control projects, and municipal wastewater treatment. Payments from agriculture and small hydroelectric plants have been mostly symbolic or non-existent and payments from other sectors have not been high enough to maintain a sustainable system. Convincing those that have not been actively participating is central to the success of this initiative: this paper will explain a framework called Social Marketing which is becoming more widely used throughout the globe to inspire behavior change. Social Marketing is a tool that can be used to persuade more users to pay the cobrança.
Open access
Water resources management and optimization
Conservation, Biodiversity, and Resource Management
Johanna Etner, Meglena Jeleva, Pierre‐André Jouvet
This article study the impact of risk perception on environmental policy. The environmental quality is uncertain and can be improved by voluntary contributions. We introduce then an heterogeneity in individuals' risk perceptions. In this context, the social optimum can be decentralized by tax financed government subsidies to private provision. We distinguish the case of a government who represents perfectly agents' preferences from the case of a government with its own risk preferences. In the two cases, we show that neutrality still holds
Carlos Eduardo Frickmann Young, Carlos A. Roncisvalle
The objective of this study is to examine the evolution and characteristics of the financing for the nvironment in Brazil, in order to identify the advances and retreats after the Rio 92 Conference. Brazil has a very decentralized administration, composed of three independent levels of public administration: the federal government, 27 state governments, and more than 5000 municipios, " or municipalities; all of them with specific environmental institutions. However, at the time of the completion of this report, there were no indicators that aggregate information from these different institutional levels for the 1992-2001 period.(1) Thus, this study was a first effort to generate this kind of figures. Given the very short time for its completion, the main priority was to identify the resource flows from the federal government and some selected states. Efforts to estimate spending on pollution control and other environmental activities by the private sector were also made. In addition, the issue of funding sources is also discussed. Despite many methodological problems involved in the elaboration of these indicators, it was possible to identify trends and conclusions for environmental spending. At the federal government level, it was estimated that environmental expenditures were between 0.4% and 1% of the federal spending. Another important finding was that, although there was an official commitment to increase efforts in this area after the Rio 92 Conference, the overall federal government expenditures in environmental issues did not increase during the 1993-2000 period. Moreover, a matter of concern was the declining quality of this spending, with fewer resources directed to end-activities and more money diverted to means-expenditures. An important cause of this was the increasing share of debt related expenditures (interests and amortization) in the total budget. On the other hand, investments suffered cutbacks, particularly in the more recent period, and the expenditures in personnel fell systematically by 25% in constant prices during the second half of the nineties. Environmental projects are the most important single element in international cooperation agreements. However, the flow of foreign resources presented a declining trend since 1994, oscillating between 6% and 17% of total expenditures. Most of these resources come from external credit operations (loans), which means that in the long term, they represent an extra pressure of financial expenses in the budget. The proportion of international donations/total expenditures in 2000 fell to the lowest level in the series (2.0%), clearly indicating the decline of international support for environmental projects in Brazil. Results for the 1996-98 period show that, if sanitation costs are included (an overestimate since it also considers water supply), environmental expenditures are relatively more important for local governments: around 9% of the total public spending in the sample of municipios considered. State governments are in the second position, spending around 1.5% of their budget on environmental issues, in contrast to the less than 1% of the federal government. For this reason, there remains a clear need to generate better aggregate figures for the states and municipios for the whole period. The methodologies used for public budgeting and expenditure control vary widely, making it very hard to supply compatible aggregate numbers. In the three states where longer time series were estimated (São Paulo, Paraná and Rio Grande do Sul), there was no consistent trend of increasing expenditures on environmental objectives. Another gap that needs to be fulfilled refers to the private sector environmental spending. There were positive signals which indicated that the private sector is getting more concerned with the environmental issues, particularly those agents that have interests/responsibilities at the international level. It was calculated that the environmental spending of the industry sector was around R$ 160 million per year, slightly less than 1% of its value added. Although it is expected that this number will increase in the future, it is considerably lower than the public sector spending on environmental issues. It is very difficult to aggregate all these figures, but assuming for the year 2000 that the public spending on environmental issues was of 1.5% of the total, the public environmental spending would be of 0.33% of GDP, and an annual expenditure per capita of R$ 22.9 per capita (US$ 9.2 per capita). If the estimated industrial environmental spending (R$ 160 million) is added, the total spending becomes R$ 4.1 billion (0.34% of GDP), or R$ 23.9 per capita (US$ 9.6 per capita). Most of the funding for environmental projects comes from the government (mainly federal, through BNDES), international development agencies, or from companies' own resources. The private financial sector has a minor role on the financing of environmental expenditures but, gain, there are signals of positive changes, with the creation of innovative private funds specialized in environmentally friendly projects that combine financial and "green" interests as an example. The consolidation of economic instruments in international environmental agreements, particularly the Kyoto Protocol on greenhouse gases emissions, may accelerate this new financial market. Another potential source of funding for environmental projects is connected to the implementation of economic instruments in the environmental management system. Command-andcontrol procedures, such as licensing and emission standards, largely dominate the environmental regulation in Brazil. However, some interesting experiences, such as the "green" tax rebound (ICMS verde) and the recent changes in the water resources policy adopting the user/polluter-pays principle, indicate that the role of economic instruments will increase and, consequently, that there is potential for developing self-sustained financial mechanisms to sponsor environmental expenditures. (1) After the completion of this research, the Brazilian Institute of Geography and Statistics (IBGE) published estimates of public spending for the 1996-98 period (IBGE 2001). Whenever relevant, these figures were also added to the analysis, but with an alert that they were obtained using different methodological procedures."
After years of debate, there is still much disagreement about the economic impacts of highway infrastructure. This article suggests that recent empirical evidence can help reconcile the divergent views on the role of highways in the economy. The resolution illuminates two ideas that should be more prominent in transportation policy. First, highways are associated with both local economic gains (often near a project) and economic losses (often distant from a project). In a system of centralized highway finance, this creates the possibility of a geographic mismatch between the areas that pay for highway projects and the areas that benefit from those projects. Second, efficiently using the available highway capital is potentially as effective as building additional highway stock in enhancing the local economic impacts of highways. Both ideas suggest the need for more decentralized, project-specific highway finance that includes a role for efficient pricing. The policy implications of a more decentralized highway finance system are discussed in the closing section of the article.
Maria da Conceição Sampaio de Sousa, Francisco de Sousa Ramos
The importance of public expenditure in such social services as education and public health represent a decisive contribution to a nation’s progress. A major problem is how to allocate government spending in such a way as to provide public services efficiently. In a political federation as the Brazil, the critical issue becomes the choice of the degree of decentralization in the provision of public services. Decentralization is advantageous in the production and distribution of public services due to: i) the proximity of users facilitates the ranking of the priorities; ii) it is easier to control the use of resources; Hi) the requirements of managerial capacity are lower. In this paper we assess the performance of Brazilian municipalities regarding the utilization of public revenue. The paper inquires whether, for a given availability of services, local governments minimize the expenditure needed to finance those services. To answer these questions, a cost-efficiency frontier will be determined by using various techniques of efficiency analysis: two DEA variants — DEA-F and DEA-V — and the FDH approach. Our results suggest that the Brazilian recent municipal decentralization policy does not lead to an efficient use of public resources. The outcome of this policy was a proliferation of small municipalities that, due to their size, do not benefit from the economies of scale inherent to the production of certain public services. They tend to operate with higher average costs thus bringing about a considerable waste of resources, which can be inferred by estimating the excessive public spending that characterizes those cities.
After providing… [public expenditure] … theory with its… optimal conditions, I went on to demonstrate the fatal inability of any decentralized market or voting mechanism to attain or compute this optimum [Samuelson, (1955), p. 35]. … to say that market mechanisms are non-optimal, and that there are difficulties with most political decision processes, does not imply that we can never find new mechanisms of a better sort [Samuelson (1958), p. 334]. Providing the [public] expenditure in question holds out any prospect at all of creating utility exceeding costs, it will always be theoretically possible, and approximately so in practice, to find a distribution of costs such that all parties regard the expenditure as beneficial and may therefore approve it unanimously [Wicksell (1896), pp. 89-90]. How much of this [the principle of unanimity and voluntary consent in taxation] … may be of practical use in the near future, men of affairs may decide [Wicksell (1896), p. 73]. INTRODUCTION The theory of public goods has, in the space of 20 years, revolutionized teaching and research in public finance, had a major impact on the content of microeconomic theory in general, and has provided, for many, the analytical foundation for an economic justification for the state. The most widely accepted proposition in contemporary public finance is the “fatal inability” of decentralized market or voting institutions to attain a Pareto-optimal allocation of resources when there are public goods.
The purpose of this paper is to compare the performance of some instruments of environmental policy, using data for a coal-fired power plant. Each decentralized scheme coverages towards the social optimum, chosen by a regulator. We look at the performance of a changing tax rate on emission, of an announcement of the tax formula, of an announcement of the tax formula with a tax refund possibility, and of a tax-cum subsidy scheme. Our emphasis is on full information concerning the tax and subsidy formulas and on the opportunity for the firm to optimize intertemporally. We also test two performance schemes which combine social optimal pricing with optimal abatement decisions. Our interest is to compare the speed of convergence of the schemes, the monetary side payments (subsidy, bonus) required, and to look for self-financing schemes.
primed to give unduly consistent or instrument-induced responses clearly suggested by the rather substantial variation among service categories shown in Table 2 above. 11. Joel D. Aberbach and Jack L. Walker, Attitudes of Blacks and Whites Toward City Services: Implications for Public in J. Crecine (ed.), Financing the Metropolis (Beverly Hills: Sage, 1970), pp. 519-537; Angus Campbell and Howard Schuman, Racial Attitudes in Fifteen American Cities, in Supplemental Studies for the National Advisory Commission on Civil Disorders (New York: Praeger, 1968), pp. 3-67; Floyd J. Fowler, Jr., op. cit.; John P. Pelissero, Citizen Evaluations of Cotmmnunity Services in Oklahoma (Norman, Okla.: Bureau of Government and Research, 1978). is Race an Important Factor? in H. Hahn (ed.), People and Politics in Urban Societv (Beverly Hills: Sage, 1972), pp. 369-392; Francis X. Tannian with Kevin Dawson, Views of Neighborhoods, Commuters, and Businesses Concerning the Productivity of City Services (Newark: University of Delaware, College of Urban Affairs and Public Policy, 1977); Thomas J. Williams, Citizzen Evaluations of Local Government Services in a Southern Community (Washington, D.C.: National Association of Schools of Public Affairs and Administration, 1977). 12. In interpreting these correlations we limit ourselves to considering two variables related only when their coefficient of sufficient magnitude to be statistically significant at the .05 level of probability; i.e., there only a 5 percent or less probability that the variables are actually unrelated in the population as a whole. An important preliminary consideration in the interpretation of any multiple regression analysis the possibility that the results are compromised because of the problem of multicollinearity; i.e., very high correlations between two or more of the predictor (independent) variables in the equation. Very high correlations in this context have been considered by H. F. Weisberg and B. D. Bowen, An Introduction to Survev Research and Data Analvsis (San Francisco: Freeman, 1975) to be those greater than .70 (p. 214). K. B. Rai and J. C. Blydenburgh, Political Science Statistics (Boston: Holbrook, 1973), p. 232, consider multicollinearity present when coefficients greater than .80 are found between independent variables. In either case, none of the simple correlations between the independent variables in this analysis approach such a level. 13. See Advisory Commission on Intergovernmental Relations (ACIR), 1978: The Year of the New Populism, Intergovernmnental Perspective, Vol. 5 (Winter 1979), pp. 4-5. 14. As quoted in ACIR, States Tackle Tough Fiscal Issues, Intergovernmental Perspectmve, Vol. 5 (Winter 1979), p. 7.